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YEAREND-U.S. telecommunications consolidation to increase
Reuters Story - December 14, 1997 13:48
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By Jessica Hall
NEW YORK, Dec 15 (Reuters) - Consolidation in the U.S.
telecommunications industry is expected to intensify as
companies try to create one-stop sources for everything from
phone service to Internet access -- but consumers could get
lost in the rush.
"The problem with mergers is that it creates a domino
effect. It creates a perception that the only way to survive in
the telecom market is to be the biggest of the big. Each merger
perpetuates that idea," said Thomas Long, senior
telecommunications attorney for The Utility Reform Network
(TURN), a non-profit consumer advocacy group.
"And the more and more companies getting together creates a
marketplace that is not too different than the old Ma Bell. It
may be working towards a day when we have three or four Ma
Bells and fewer competitors," Long said.
The passage of the Telecommunications Act of 1996 was
expected to spark widespread competition, expand service
options and lower prices as phone, cable television, utility
and computer companies rushed to bring news, information and
calling services to homes and offices.
Instead, the results have been minimal at best, some
critics said.
The number of potential competitors has shrunk through
recent mergers, cable TV and pay phone prices have risen, and
there is no perceptible competition in the local phone market,
said Mark Cooper, the Consumer Federation of America's research
director.
"There's no doubt that the forces of evil are running far
ahead of the forces of good in the Telecommunications Act.
We're getting a lot of concentration and no competition,"
Cooper said.
And the rush to consolidate is expected to intensify.
"There certainly seems to be an increased appetite on the
part of the mega-players to continue alliance or merger
discussions. No one wants to be the last one on the dance
floor," said Andy Zimmerman, managing partner of accounting
firm Coopers & Lybrand's telecommunications practice.
While analysts doubt any new deals will top the proposed
$37 billion merger of MCI Communications Corp. and
WorldCom Inc.(), new partnerships and smaller mergers
may become everyday news, analysts said.
"I don't see many WorldCom/MCI-type deals. There may be one
or two if a Baby Bell gets into a deal, but the more common
type will be smaller acquisitions and alliances," said Kevin
Gooley, an analyst with Standard and Poors Corp.
"Doing a merger tends to be very difficult to do with
regulatory scrutiny. You have to jump through a lot of hoops.
An alliance gives you much of the benefits of a merger without
all the hassle," Gooley said.
The competitive local exchange carriers (CLECs), such as
Teleport Communications Group Inc., remain among the
top takeover targets, especially for long-distance companies
seeking to enter the local market, analysts said.
AT&T Corp., which is expected to make investments in
local service through an acquisition or partnerships, is seen
as a likely buyer of Teleport, analysts said.
Teleport stock has surged in recent weeks on market
speculation of a possible takeover. Teleport declined to
comment.
Speculation has also resurfaced that AT&T could revive
merger discussions with regional Bell SBC Communications Inc.
<SBC.N). But analysts said AT&T would have a tough time selling
that deal to regulators, who would be reluctant to approve the
creation of such a behemoth without strict scrutiny.
In addition to domestic partnerships, international
alliances will be in the spotlight as telecommunications
becomes an increasingly global business, analysts said.
British Telecommunications Plc <BT.L), which was thwarted
in it bid to acquire MCI, still seeks a foothold in the U.S.
market.
BT would be an attractive partner for AT&T, GTE Corp.
or any of the regional Bell operating companies looking
to broaden their global reach without the expense of building
their own facilities abroad, analysts said.
Since GTE's bid for MCI was trumped by WorldCom, market
rumors have linked Stamford, Conn.-based GTE with a variety of
companies, such as BT or Teleport.
BT dismissed the speculation. GTE, which has not formally
dropped its bid for MCI, declined to comment.
While some analysts see GTE and Teleport as a good fit,
others say AT&T would be a more likely suitor.
But telecommunications companies will have to do more than
just grow in size, industry consultants said.
Companies will have to become more nimble and more
sensitive in meeting increasing customer service demands,
analysts said.
"We'll see the continued reinvention of the way people do
business. There's a changing market. And changing customer
expectations and demands," said Jeffrey Kagan of Kagan Telecom
Associates in Atlanta.
Business customers are seen as the main beneficiaries of
the industry concentration. Companies often target business
clients first since they spend more and are easier to serve
than residential customers in remote areas.
But some think mergers will benefit consumers by increasing
choices and improving service.
"I think the FCC (Federal Communications Commission) looks
at these deals with such scrutiny that they benefit consumers
with better services, stronger management and more service
choices," said Fred Voit, senior analyst for consumer
communications at the Yankee Group. "The first people to see
more choices will be the business community, but it will
trickle down to consumers eventually."
( New York newsdesk 212-859-1610 )
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